It is nothing new for private securities litigation to follow in the wake of a company’s announcement that it is the target of an SEC investigation. Similarly, civil litigation following after a company’s announcement of the existence of an FCPA investigation is a phenomenon I have frequently noted on this blog. A number of these more traditional kinds of post-investigation civil lawsuits have been filed in 2013.


But in addition there have also been as host of lawsuit filings this year following company announcements of a wide variety of other kinds of regulatory investigations.  These latest lawsuit filings following a broader array of regulatory investigations represent something of a new phenomenon and also represent a significant part of the 2013 securities class action lawsuit filings. They may also point toward a likely future source of securities suit filings as we head toward the New Year.


During 2013, there have been a number of the more traditional type of securities suit filings following after a company’s announcement of an SEC investigation. For example, Corinthian Colleges, the for-profit education company, was hit with a securities class action lawsuit in June 2013 after the company announced an SEC investigation as well as the SEC’s request for information relating to student recruitment, attendance, completion rate, placement and loan practices. In July 2013, plaintiffs filed a securities suit against Star Scientific following the company’s announcement that it had received subpoenas from the SEC and from the U.S. Attorney’s office about related party transactions at the company. In March 2013, ITT Educational Services, another for-profit educational company, received a securities suit following the company’s announcement of an SEC investigation of student loan arrangements.


There have also been new securities suit filings this year following companies’ announcements of FCPA investigations. For example, in August 2013, plaintiffs filed a securities class action lawsuit against Juniper Networks following the company’s announcement of an ongoing SEC and DoJ investigation into possible FCPA violations. In April 2013, plaintiffs filed a securities lawsuit against WalMart de Mexico following publicity surrounding allegations of bribery and other misconduct in connection with company operations in Mexico.


The arrival of securities lawsuit following the announcement of these kinds of investigations has long been a feature of securities lawsuit filings. In addition to these more traditional types of filings following SEC and FCPA investigations, there have been a number of other filings this year that involve very different kinds of post-investigation lawsuits.


The recent securities suit filed in the Eastern District of Virginia against Lumber Liquidators and certain of its directors and officers represents a good example of these more diverse kinds of post-investigation lawsuits. On November 26, 2013, plaintiff shareholders filed their complaint (a copy of which can be found here) against the hardwood flooring retailer following the company’s disclosure that the U.S. Department of Agriculture, the U.S. Fish and Wildlife Service, the Department of Homeland Security and the Department of Justice had executed search warrants on the company’s corporate offices in connection with the company’s possible violation of the Lacey Act for the alleged importation of illegally logged wood products from forests in eastern Russia and China.


There have been a number of other recent securities suits filed following companies’ announcement of a broad range of governmental investigations. For example, on November 29, 2013, plaintiffs filed a securities suit against DFC Global following an industry-wide investigation of payday lending by the U.K.’s Office of Trading, which was accompanied by severe losses in the company’s U.K. lending portfolio. 


And on September 25, 2013, Valley Forge Composite Technologies received a securities suit relating to the company’s February 2013 announcement that it was being investigated by the U.S. Attorney’s office for the company’s alleged export to Hong Kong of military semiconductors in alleged violation of the International Traffic in Arms Regulation (ITAR).


Other companies have also received securities suits during 2013 following company announcement of governmental or regulatory investigations. In September 2013, BioScrip was hit with a securities class action lawsuit following its announcement of its receipt of a civil investigative demand from the U.S. Attorney’s Office and the New York A.G.’s Medicare Fraud Unit relating to its distribution of certain pharmaceuticals.


In August 2013, plaintiff shareholders filed a securities suit against NuVasive following the company’s July 2013 announcement that it had received a federal administrative subpoena from the Office of the Inspector General of the U.S. Department of Health and Human Services in connection with possible false or misleading claims submitted to Medicare and Medicaid.


And in September 2013, plaintiffs filed an action in the Southern District of New York against PetroChina Company Limited, following the company’s announcement in late August of an investigation of the company’s corporate parent by a Chinese governmental ministry and the investigation of several company officials by the State-Owned Asset Supervision and Administration Commission for “severe breaches of discipline,” which is widely interpreted to mean corruption and bribery.


In April 2013, investors filed a securities class action lawsuit against Autoliv relating to the company’s announcements in early 2011 that the DoJ and the European Commission were investigating units of the company for anti-competitive practices and antitrust violations. The investigation resulted in the company’s June 2012 agreement to plead guilty to price-fixing for certain auto parts.


Collectively, these post-investigation cases (including the more traditional types of cases involving SEC and FCPA investigations) represent nearly ten percent of all of the securities class action lawsuits so far this year, so they represent an important phenomenon in and of themselves. But these fillings may be even more significant to the extent they represent a securities suit filing trend in which increased numbers of securities class action lawsuit filings arise in the wake of governmental investigative activity.


There are several things about these cases that make them particularly interesting to me. The first is just the broad array of governmental investigations that preceded the lawsuit filings. It is no secret that U.S. governmental regulators have become increasingly more active and arguably even more aggressive. As a broader range of regulators actively enforce a broader range of laws and regulations, companies face the possibility of a growing number of types of investigations accompanied by a greater risk of follow-on civil litigation.


Another thing that interests me about these examples is the international element of several of the claims. At least three of these lawsuits involve or related to governmental investigations by regulators outside the U.S., and several of the suits involve the investigation by U.S. regulators of possible misconduct outside the United States.


I put these post-investigation lawsuits with an international element in the context of several meetings I had this fall with industry colleagues from outside the United States, who uniformly commented to me that regulatory activity outside the U.S. is surging. D&O underwriters from outside the U.S. commented told me that they are receiving unprecedented levels of claims notifications involving non-U.S. regulatory actions.


These actions involving non-U.S. regulators are arising at the same time that U.S. regulators are also increasingly active. Indeed, one feature of several of the current high-profile investigations in the financial services industry (for example, Libor, currency exchange, and trade sanctions) is the level of cross-boarder collaboration and cooperation between various governments’ regulators.


Assuming that the Supreme Court does not completely alter the securities class action litigation environment in the Halliburton case, it seems likely to me that this phenomenon of post-investigation filings that loomed so significantly in 2013 will be even more important in 2014. The likelihood is that there will be more cases involving an even broader array of regulatory and investigative activity with an added likelihood that non-U.S. regulatory activity will be involved in a growing number of these kinds of cases.


Last week I happened to be at a meeting in which one of the more prominent securities defense attorneys asked one of the leading securities plaintiffs’ attorneys what kinds of companies or things the plaintiffs’ lawyers were going to be going after next. The plaintiffs’ attorney demurred to the question, basically saying when I find out myself I will let you know. The plaintiffs’ lawyer was unwilling to make any predictions but I will speculate here that as we head into 2014 this phenomenon of follow-on post-investigation civil litigation is going to be increasingly important (assuming of course that Halliburton does not change the entire litigation landscape).